Fraudulent practices have always been around since the dawn of commerce. However, the speed and scalability of the internet in addition to its anonymous nature has made the problem prevalent, widespread, and global.
One of the main challenges facing eCommerce retailers today is return fraud. Perpetrators of return fraud continue to come up with new and innovative ways while retailers are always trying to catch up. A simple search on the web generates detailed tutorials on how to go about keeping what you ordered and still get a refund.
Did you know that annually consumers around the world make returns totaling 5.5 trillion kroner? To gain perspective of this amount, the value of the goods that consumers return within a year would rank as the 21st largest economy behind Switzerland and ahead of Poland based on the 2019 World Bank’s GDP rankings.
What is Return Fraud?
Return fraud is when a customer takes advantage of your return policy and gains financially at the expense of your business and inventory. Maintaining a fine line between consenting to honest customers returning goods and averting fraudulent persons from taking advantage of your return policy is a delicate act. Branding innocent customers as fraudulent will damage the reputation of your business. On the other hand, permitting fraudulent returns may run down your eCommerce business.
Reclaimit is well conversant with online scams given our long-term experience in customer relations. Relating to return fraud, we have identified that the electronics and apparel categories are the most affected.
Tell-tale signs of Return Fraud
👉 A pattern of return history within a short duration right after purchase
👉 Placing variations of the same product within the same order
👉 Shipping returns from a location that is different from where the original delivery was made
👉 Weight on the return package varies from that of the original package
Types of Return Fraud
As a form of return fraud, wardrobing is where a customer buys a product and uses it for a specific purpose or event, and then proceeds to return the item within the return window for a full refund. Items that are commonly wardrobed include dresses (for prom), formal suits (for interviews and special events), cameras and travel electronics (for road trips), and large screen televisions or projectors (for major sporting events). Shrewd customers either return the back stickers once they’re done with the item or hide the product tags while wearing the clothing.
Wardrobing is the most common fraudulent return practice. Why? It’s relatively easy to engage in and problematic for retailers to assess. It’s a loss for the business since the customer uses your product at no cost and returns it within the duration of your return policy.
Swapping as the name suggests involves a customer purchasing a new product and exchanging it with an old or damaged product. In comparison to wardrobing, swapping is arguably more criminal since there is premeditated intent from the customer since the customer goes ahead and purchases a similar product with the exact specifications including the color and design. In the end, the customer is left with the new product while your business will have lost a sale and will have to deal with unwanted inventory.
A chargeback is where a customer initiates a credit card dispute with their bank and demands that the original transaction is reversed. Funds that were credited to a retailer are reversed and credited to the customer. In comparison to wardrobing and swapping, chargebacks are indirect and the retailer isn’t involved.
How to identify Return Fraud
1.Compare exchanges with returns
One easy way of discovering return fraud is making a comparison between the number of exchanges versus returns made. While exchanges make a sale (since you’re exchanging one product for another), returns imply a loss of sale. Based on your inventory, having excess returns implies that possibly fraudsters are taking advantage of your return policy through swapping or theft.
2.Scrutinize product categories
Examine returns based on each product category. As we had mentioned earlier, fraudsters typically go for expensive items that serve a specific purpose. Besides, there’s little or no incentive going for cheap items. Inspect all big-ticket items on your inventory including consumer electronics and formal wear to see if there are any pointers to return fraud.
3.Watch out for seasonal events and the holiday season
A high percentage of return fraud occurs around specific dates that are accompanied by special events. Look out for high returns during graduation, Midsummer, Halloween and during Christmas. As a business owner, be extra vigilant for any signs signaling high returns during this period.
Addressing Return Frauds
1. Have a clear return policy
Your return policy should be clear and transparent. While aiming to create a return policy that is hassle-free to ensure customers have a pleasant experience, it is important that you don’t leave loopholes for fraudsters to exploit. It is a tough balancing act since it shouldn’t also be too onerous that it turns away potential customers or damages the reputation of your business.
👉 A short return window discourages wardrobing
👉 Proof of purchase deters fraudsters from returning stolen goods
👉 Maintaining that all returns should be in their original condition and packaging discourages swappers and wardrobers
👉 Prohibiting returns on certain items
👉 Direct that all refunds are made to the original mode of payment. This will discourage shoplifters since they won’t be able to produce the original mode of payment.
2. Monitor your inventory
Maintaining accurate inventory records is crucial to managing return frauds. We recommend that you use bar code technology. Bar code technology is an efficient way to prevent swapping fraud since each product has its unique serial number. Unlike physical counting, it’s efficient and won’t affect your day to day operations. Use an inventory management software to conduct daily inventory cycle counts once you sync physical inventory with the inventory available for sale.
3. Track shipments
Use unique shipping track numbers and signatures to track all your shipments up to the point of delivery. You’ll have prevented allegations of unreceived parcels. Always insist that the customer signs a receipt confirming delivery. You can use this to refute any chargeback claims made with proof of delivery and receipt.
4. No Box or Lable Required
Consider incorporating a “No Box or Label Required” return method. Basically, you allow customers to make returns without necessarily requiring them to repackage the merchandise. In most instances, consumers will believe that it is to their benefit since it’s convenient. However, this approach will also make it difficult for fraudsters to conceal or replace items.
5. Review Free-shipping Policies
A common clause provided by many retailers is that buyers only qualify for free shipping if they meet a certain spending threshold. Unfortunately, this offers serial returners a loophole to exploit. Fraudsters purchase items they don’t have any intention of keeping to reach the threshold. You guessed it right. Once they receive the items, they’ll take out what they need and return the rest of the shopping cart. In the end, free shipping is costing you more money as a result of returns. If you are going to provide free shipping, let it have no special clause that restricts the buyer to purchase a certain volume of items or using a certain amount of money to qualify.
6. Use Prevention Technologies
Traditional return policies for a long duration of time served the eCommerce space well but things have changed and return frauds have evolved. You need to protect yourself from persons taking advantage of your return policy. One way to do this is by adding tags that can’t be put back once they’re removed, e.g. shark tags.
7. Blacklist Fraudsters
We mention this as our last option since it’s a measure taken as a last resort. It’s intended to persons who have been caught abusing your return policy on several occasions. To find out persons who may be abusing your return policy, compare their purchases alongside their returns in your inventory management. There are various great apps that you can use to capture this data e.g. the Emerge App. Blacklist any customers with an unusually regular return rate or irregular return patterns. Consider elements we had mentioned earlier such as events and time of the year.
The emergence of B2C and B2B has seen the shift of business globally. The same can be said of fraudulent practices that see online businesses lose billions of kroner annually. Dishonest customers often take advantage of generous return policies at the expense of businesses. eCommerce platforms should be proactive in taking measures to tackle fraudulent returns. Ultimately, in implementing these strategies, you want to balance between providing a great customer experience and protecting your business.